Dividend Paying Stocks are Not a Substitute for Bonds

With yields at all time lows, investors have been forced down the credit spectrum in order to find a decent level of return. Often times not being adequately rewarded for the increased risk they’re taking on. This has led some to question the viability of bonds in a portfolio at all, touting the benefits of dividend paying stocks as a substitute.

But Cullen Roche, founder of Orcam Financial Group, LLC, wants to dispel that myth once and for all. “Dividend paying stocks are not a substitute for bonds.” He says. “A bear market in bonds is nothing like a bear market in stocks. When someone compares the two instruments it means there is a high likelihood that they don’t understand the capital structure very well and haven’t connected all the dots here” says Roche. A fixed income instrument has several embedded safety components that make it entirely different from stocks.

Source: Learn Bonds

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